TW, Disney share fallout from feud

The big losers in Time Warner Cable's decision to drop ABC stations from the cable operator's systems during sweeps week weren't ABC advertisers, but consumers and the warring media giants themselves.

National TV advertisers witnessed little to no effect from last week's move by Time Warner to exorcise ABC programming from 3.5 million homes in seven major markets including Los Angeles and New York.

The move was the result of a dispute with ABC's parent, Walt Disney Co., over cable carriage fees for Disney's cable channels and retransmission fee agreements for the ABC stations. Virtually no apparent damage was caused in terms of ABC's advertising revenue, according to a spokeswoman.

But Time Warner and ABC did damage their credibility among consumers and government officials--causing the U.S. Federal Communications Commission to intervene at a time when Time Warner, in the throes of a merger with America Online, needs it least.

FIRST STONE

"For the industry, it's not a question of who threw the first stone. The companies and industry can't afford to bring consumers into this," said Tom Wolzien, media stock analyst for Sanford C. Bernstein. "It's just an invitation for government scrutiny and regulation."

"Time Warner and AOL have a social responsibility to consumers, and consumers are becoming more aware of it," said Peter Krasilovsky, VP at the Kelsey Group, a consultancy specializing in new media.

The ugly public feud erupted May 1, just as ABC was starting its first big push during the sweeps. Subscribers tuning to ABC found only this message: "Disney has taken ABC away from you." The standoff lasted 39 hours; agreement between Time Warner and Disney was reached May 2, extending the negotiation time for a final pact on the carriage fees until July 15.

RATINGS IMPACT MINIMAL

The banishment had little impact on ABC from a ratings standpoint. Its broadcast of its celebrity-studded "Who Wants to Be a Millionaire" earned a historic Nielsen 22.5 rating/35 share, the highest numbers ABC had achieved in the Monday 8 to 9 p.m. time period in 15 years. The next night, the show--aired on Time Warner cable systems--posted only slightly higher numbers, at a 23.6 rating/38 share.

One media executive speculated that even if Time Warner had kept ABC off the air for a week, the loss in viewership would have been minor. That's because the estimated audience drop-off was, at most, 1%. Although 3.5 million homes weren't available to ABC May 1, only about 1 million probably would have been viewers, based on ABC's rating.

"It means a 23.6 rating would have been a 22.5 rating. That's not a big deal," said a West Coast media buyer.

NO GUARANTEE

ABC wouldn't have had a make-good problem for advertisers either. Because "Millionaire" wasn't sold in last year's upfront, there were no rating guarantees.

TV stations set advertiser rates for the coming year based on previous sweep periods. While stations generally don't offer iron-clad, network-like guarantees, compensation usually is made when programming substantially underperforms.

Locally, some markets were hit a bit. "Houston and Raleigh-Durham were the most affected," said Cathy Crawford, director of local broadcast for Initiative Media North America, Los Angeles. "But the stations were very responsive in offering make-goods."

At KTRK-TV, Houston, Jerry Lyles, general sales manager, reported "Millionaire" earned an 18 rating on May 1, but bumped up to a 29 on May 2. "There was certainly some nervousness from our buyers' perspective, but it turned out our numbers were competitive." Estimates, according to Mr. Lyles, were that show would perform at least an 18 rating during the sweep period.

But while Madison Avenue may not have noticed, Washington did. The FCC admonished Time Warner, announcing the cable operator violated agency rules when it unplugged ABC. The federal agency was responding to ABC's petition, filed May 1. The FCC concluded that Time Warner breached a provision in communications law that forbids cable companies from dropping local channels during sweeps. The FCC also said it's considering "appropriate enforcement actions."

That's a blow for Time Warner--whose merger with AOL needs approval by the Federal Trade Commission and FCC, neither of whom look kindly on restraint-of-trade charges.

Moreover, the nasty public spat may have backfired for Time Warner, possibly sending some of its subscribers to satellite TV.

Disney, in fact, encouraged just that, retaliating by running ads in The New York Times and newspapers in other cities, offering rebates to some cable customers to switch to satellite service. "If Time Warner can dish it out, so can we--at no cost to you," read the ad, which promised a $198 rebate for the first 1,000 people who called in and ordered DirecTV. ABC is considering extending the offer to the other, smaller markets that lost the signal.

SUBSCRIBERS ULTIMATELY WILL PAY

"Consumers can't be expected to understand the business [side] of getting their favorite channels on their cable system," said Kelsey Group's Mr. Krasilovsky. "I wouldn't be surprised if this gives a big boost to the satellite dish business."

Added Larry Gerbrandt, senior VP at media entertainment consultant Paul Kagan Associates: "Disney is going to make Time Warner pay more for programming, and guess who gets stuck with the bill? The subscribers."